Crude Oil finally broke above the USD54 resistance

Yesterday, crude oil broke above its strong horizontal resistance at USD54 which has capped its advances for the past 2 months. See Chart 1 on WTIC below.


Chart 1: WTIC's daily chart as at 5/5/2009 (Source: Stockcharts.com)

The breakout in crude oil prices coincided with the bearish break in the medium-term uptrend line for USD index (see Chart 2 below). The weakness in USD is probably prompted by aggressive quantitative easing by the Federal Reserves. It may also have suffered from the revival of the "animal spirit" which saw funds managers leaving their safe havens (mostly, US Government bonds) & investing in international markets (such as the Asian markets) in order to earn higher return. The influx of foreign funds is one of the reasons for the sharp rise in Asian equity markets over the past few weeks.


Chart 2: USD index's daily chart as at 5/5/2009 (Source: Stockcharts.com)

The bullish breakout for crude oil would provide more fuel to propel the rise in Oil & Gas counters. The weakness in USD would also be positive for commodities in general. This would prove to be very timely for our CPO, which looks quite toppish currently.